Saturday, June 10, 2017

A political economy

A recent piece in the Economist (A new anthology of essays reconsiders Thomas Piketty’s “Capital”, May 20, 2107) ends with these words: "Economists set themselves too easy, too useless a task if they can describe how capitalism works only when politics is unchanging."

The article reviews After Piketty: The Agenda for Economics and Inequality a book that collects reactions by several economists to Piketty's Capital in the Twenty-First Century and it's central thesis that historically, the rate of return on capital has been greater than the growth rate.

The closing words of the review reaffirm a pet idea of mine. The separation of economics and politics is a mistake. In the universities, they're different departments. You'll hear no end of the Chicago-school lament that, "If the government would just stay out of the way, the economy would sort itself out!"

But, power and money are fungible. Money can buy access to power and influence over its exercise. The existence of the lobbying industry proves it. And, power can be used to acquire wealth in ways ranging from taxation to the business empire of the Iranian Revolutionary Guard. Power and wealth are two sides to the same coin. What is money other than the power to command resources?

From another point of view, both the economy and the political sphere are complex systems. Characteristics of such systems include that they are composed of many densely connected interacting parts and that they exhibit direct and indirect reactions to any perturbation. Second and higher order effects are significant, sometimes even dominant. Politics and money are deeply interconnected, and there's no reason to suppose the propagation of effects would politely stop at the border.

Imagining the economy in isolation from politics can be useful, the way a frictionless plane is useful in physics - as a device to make the math easier. But it shouldn't be forgotten that in reality there's no such thing.

Thursday, March 30, 2017

Rollback of the Fiduciary Rule

For those keeping track, back on February 3rd, Trump signed an execute of order targeting the Dodd-Frank Act, the tepid financial reform passed to try and prevent a repeat of the 2008 financial crisis and its trillion dollar bail-out of Wall Street.

The lady in green seems very pleased. That's Representative Ann Wagner, Republican of Missouri's 2nd district, who called rolling back the fiduciary rule “a labor of love for me.” Coincidentally, donors with names like Jones Financial Companies, Northwestern Mutual, Wells Fargo, Financial Services Institute PAC showed Wagner a lot of love in the form of campaign funds.

Wednesday, March 29, 2017

Congress rolls back Internet privacy

The Republican Congress proves again that they care more about wishes of corporations than the best interests of constituents.

The Senate has sided with the telecoms industry in a bill that lets internet service providers decrypt private traffic, collect personal information, and sell your data to marketers and others.

S.J.Res.34 - A joint resolution providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Federal Communications Commission relating to "Protecting the Privacy of Customers of Broadband and Other Telecommunications Services".

It looks like practically all Republican Senators and all but 15 Republican Representatives voted for the bill, all Democrats voted against.

Net neutrality is next in their sites.

Sunday, January 8, 2017

#Resist

How best to resist the slide of our country into tribal politics?

During the coming years, citizens of the US will need to work to keep our basic civil liberties. We need to form new institutions to counter corruption, machine politics and propaganda, figuring out as we go what those new institutions will look like and how they'll work in the new environment we're in.

Start by getting some understanding of how politics and civil society work. TODO add to this list:

Supporting existing orgs won't be enough, but it's an important start:

Question: Are there any organizations in the clean government space that are truly non-partisan and respected by reasonable people on both sides of the aisle?

Friday, September 4, 2015

A Very Short Introduction to Economics

Partha Dasgupta's A Very Short Introduction to Economics packs a lot into a few pages. Though incomplete and selective, it does a great job of guiding the reader through the intersections of economics and history, development, sociology and ecology.

The book is framed by contrasting the lives and prospects of two children, one in the suburban US, the other in rural Ethiopia, analyzing the factors of economic development that make the difference between communal subsistence agriculture and highly-specialized developed markets. Touching on a bit of game theory, Dasgupta shows how trust arises from mutual benefit and breaks down in the presence of uncertainty. Communities help to stabilize and safeguard trust, but in developed economies institutions increasingly ensure trust between parties who never meet.

Institutions like markets, courts and governments come easily to mind, but science and technology are two institutions of primary importance to economic development, a fact that Dasgupta crystallizes: "What Europe achieved during the Age of Enlightenment was [...] It created institutions that enabled the production, dissemination, and use of knowledge – in effect, the entire knowledge industry – to be transferred from small elites to the public at large, a transfer that so sharpened the analytic-empirical mode of reasoning that it became routine." (p99)

Science and technology are examined as institutions and economic inputs. The book sketches the unusual landscape of incentives that animate science in which highly speculative bets placed by research funders reward the successful scientist in terms of primacy and honors rather than cash and pay off for society in terms of knowledge as a public good. Dasgupta captures the tense relationship between science and technology like so:

"Increasingly though, the taste for those social contrivances has to compete against the pecuniary rewards available in Technology. If the pecuniary rewards increase – and they have increased greatly in recent years – the taste for the mores in Science becomes more and more of a luxury to the research worker. Science embodies a set of cultural values in need of constant protection from the threat posed by its rival, Technology. That threat has proved to be so real, that in recent decades the two institutions have begun to blur into each other. Scientists increasingly behave like technologists, while technologists enjoy both the pecuniary rewards of Technology and the medals and scrolls that Science has to offer." (p98)

Patents are covered but without mention of their central conflict, which the Economist expressed recently this way: "Patents are protected by governments because they are held to promote innovation. But there is plenty of evidence that they do not."

Sustainability is one of the most intractable issues of our time. Natural resources serve as economic inputs. Moreover, ecosystems provide economic services whose value escapes conventional economic analysis. Going further still, one may consider the entire human economy as a subsidiary of the earth's ecosystem. It'll strike some as a bit on the fringe to think of economics as a subsystem of nature or dwell on their deep similarities in terms of competition, adaptation, and exchanges of material and energy, but there's a very rich intellectual history behind these ideas.

Robert Frank calls Charles Darwin the father of economics as well as evolution. Turning that the other direction, economic concepts such as pareto optimality can inform the study of evolution. The central role of competition is explored in Geerat Vermeij's book, Nature: An Economic History. Organisms or organizations compete for resources, especially energy - the energy to go capture more resources. Looking at energy as the primary economic input goes at least as far back as 1921 to an address given by Frederick Soddy called Cartesian Economics. In terms of thermodynamics, it's the flow of free energy from the sun that drives local increases in order on our little planet. This is true in living systems as well as economic ones. On this topic, I'm looking forward to diving into Why Information Grows By Cesar Hidalgo. On the other hand, Mark Sagoff's essay, The Rise and Fall of Ecological Economics is critical of this line of thinking.

Those expecting A Very Short Introduction to Economics to follow a traditional economics curriculum will be disappointed. Many key economic concepts - opportunity cost, comparative advantage, elasticity are mentioned in passing or merely alluded to without naming them. Even supply and demand curves are relegated to a middle chapter. If you don't like the social-science side of economics, this is not the book for you. Also, the book is not mathy, which should be apparent from the concept of the VSI series.

One of my personal favorite ideas only gets a paragraph (p78) - Hayek's beautiful insight into the role of markets and price signals as parsimonious integrators of distributed information. Distributed computing teaches us is that coordination - transferring information, reaching agreement - is hard and expensive. The nifty trick of markets is that they tend towards efficient resource allocations while keeping down the cost of coordination. Of course, technology is good at spreading information around:

Despite the selectivity, it might be inevitable that I would like this little book since it connects several of my obsessive interests - economics, science and specifically life science. Both economics and biology are, at heart, the study of complex adaptive systems. Or in Venkatesh Rao's view, they are "soft technologies". Rao says, "Software has the same relationship to any specific sort of computing hardware as money does to coins or credit cards or writing to clay tablets and paper books." Likewise, I'd add, DNA codes living systems that run on the substrate of the cell.

Dasgupta clearly gets the perspective of the economy as a complex system made up of densely interconnected parts - households, firms and institutions - deeply linked to social and political systems and embedded in the natural world. With this encompassing breadth, the reader is well prepared to pick up a more traditional economics text with the big picture firmly in mind.

Saturday, May 16, 2015

Economist on Dynasties

"The enduring power of families in business and politics should trouble believers in meritocracy," says the Economist in a piece titled The power of families Dynasties from the April 18, 2015 issue. They draw parallels between the likely upcoming Bush-Clinton election and the Rothschild and Wallenberg families of Europe and the eminence of family businesses in most of the developing world, especially India and East Asia. "Family companies are not just surviving but flourishing"

Visions of modernity often discount the family and economic theorists concentrate on the public company. But 90% of companies in general and 40% of large companies are family businesses. Family and tribe loom large in human nature. Anglo-saxon capitalism is something of an exception in the prevalence of publicly held companies.

Family companies address two big defects at the core of capitalism: short-term focus and the conflict of interest between managers and owners known as the agency problem. Family companies, as a vehicle for the transfer of wealth across generations, have a longer term outlook and a deeper sense of ownership. They tend to underperform during booms but outperform during busts. Families can instill values and internal culture that inspires greater loyalty. Trust plays a big role, especially in the low-trust environments of many developing countries.

Problems arise in the handoff from one generation to the next. Succession battles and infighting can be big problems given the limited pool from which to draw candidates for top positions. "The third generation ruins the house." To access capital while maintain voting majorities, families often turn to complicated pyramids of holding companies and privileged share classes that separate control from income.

The ability of some of these families to keep managing those handoffs successfully and maintain control sometimes over hundreds of years is fascinating. Marginalized minorities (Jews, overseas chinese, mormons) can show great ingenuity in building business empires.

Further Reading

  • David Landes "Dynasties"
  • What You Can Learn from Family Business by Nicolas Kachaner, George Stalk and Alain Bloch, Harvard Business Review November 2012
  • Ronald Coase "Theory of the firm"
  • The Modern Corporation and Private Property, by Adolf A. Berle Jr. and Gardiner C. Means
  • The Family Business Map: Assets and Roadblocks in Long Term Planning, by Morten Bennedsen and Joseph P.H. Fan

Saturday, April 4, 2015

The Eleventh Hour

Austrian troops marching up Mt. Zion in Jerusalem, 1916. CREDIT: The Library of Congress

We live in a perilous time. According to Charles M. Sennott, veteran journalist and founder of The Global Post and the ground truth project, there are ominous parallels to the years leading up to World War I. Sennott gave a thoughtful talk at the Carnegie Council titled The Eleventh Hour: The Legacy and the Lessons of World War I video.

Sennott spent decades reporting on the Balkans and the Middle East, regions whose borders were shaped by the Sykes-Picot agreement in which France and Britain carved up the former territories of the Ottoman Empire. He begins his story on the bridge in Sarajevo where on June 28th, 1914 a 19-year-old Serbian nationalist, Gavrilo Princip, assassinated Archduke Ferdinand sparking World War I. On the same day last year, Sennott read live tweets from ISIS under the hashtag #sykespicotover.

In the middle east, the legacy of colonialism feeds never-ending conflict. Israel was at war with the Arabs upon its founding in 1948, again in the Six-Day War of 1967 and the Yom Kippur War in 1973. At various times, Israel has occupied Palestine, Lebanon and the Sinai. The Iran–Iraq War of the 80's killed something like a million people. Civil wars have raged in Lebanon, Yemen and Syria. The Kurds have fought for independence in Turkey, Iran and Iraq. America fought two gulf wars. Sennot advises thinking about the middle east "like a bomb squad; you can't defuse it without knowing how it was built."

In his series of essays, The Eleventh Hour: The unlearned lessons of World War I Sennott seeks to understand how the war to end all wars became the peace to end all peace, asking, "How can peace processes fail and trigger more war?"

Colonial legacy and religion interact with geography. For example, the violent extremist group Boko Haram emerged in Nigeria as the drying of the sahel pushed nomadic muslim herders up against the territory of southern christian farmers - a taste of the destablizing effects of climate change.

To understand how to achieve peace in our own perilous time of rising and falling powers, Sennott calls on us to study up. His recommended reading includes:

  • Christopher Clark, The Sleepwalkers: How Europe Went to War in 1914
  • Scott Anderson, Lawrence in Arabia: War, Deceit, Imperial Folly and the Making of the Modern Middle East
  • Margaret MacMillan, Paris 1919
  • Wilson by Scott Berg

Monday, December 23, 2013

The Good Life

Edmund Phelps of Columbia University, Nobel Laureate in economics, and author of Mass Flourishing appeared on EconTalk. Here's what I took away from the conversation:

Modern values and grass roots innovation

Phelps argues "that it was the birth of modern values that provided the fuel for the modern economies in Britain and America, and later maybe less fuel but nevertheless it was there in Germany and France." The manifestation of this was "grass roots innovation", propelling the rapid rises in living standards over the past two centuries.

Phelps believes that real prosperity consists of: rising wealth emerging from an individual's efforts to improve himself, work that is interesting, exercising initiative. Also, that differences in job satisfaction between countries are the result of differences in dynamism.

Phelps attributes the decline in innovation in the US since 1970 - "a narrowing of innovation to fewer industries" - to a rise of materialism, "an obsession almost with money", a rise of anti-modern values, such as conformism, and "the culture of entitlement rather than feeling that you've got to earn it yourself", along with rampant rent-seeking.

The grass roots innovation that should be going on continually has narrowed to a point where "most of the innovating that we see is that brilliant stuff going on out in Silicon Valley. And really up and down the West Coast, a fairly thin sliver of land along the West Coast."

Phelps raises the question of what kind of economy we'd want to live in, one that's more at rest and stable versus one that's more dynamic.

The Good Life

People really need to be engaged in doing things, doing rewarding things, and having the excitement of striving.
Aristotle's idea is the good life is a life that we admire in others and would like to imitate for ourselves.
In the Renaissance, people started talking about how human beings have creativity and human beings can think for themselves and should think for themselves. And people should be independent; they should have their own bank accounts and make their own living.
The good life is a life of adventure and discovery and exploration and meeting problems, overcoming hurdles. And creating. Creating stuff. For me, that's a good life. I'm sold on that.

Why might innovation cost jobs?

...to a rough approximation we can think of consumer goods as being produced mainly with capital. And capital goods are produced mainly with labor. Now, if the innovation is in the consumer goods sector, then that's driving the price of consumer goods down relative to money wages. So real wages are rising and that pulls up employment. And that's great.
But once you start having innovation in the production of the capital goods, then you've got two things going on. One, labor is physically more productive in making capital goods. But the capital goods that labor makes are now going to be cheaper, in terms of consumer goods. So that's a bummer. And that lowers real wages...

Thursday, November 21, 2013

Are we back to the 1930s again?

Great financial crises bring chaos, but they can also give capitalism a much-needed jolt

The crisis we're still living with resulted from too much predation and not enough creation – a vast extraction of value from the real economy by finance that coincided with a failure to feed new sources of growth in science, entrepreneurship and creativity.
The last great financial crisis, in the 1930s, unleashed war and chaos. But it also led to an extraordinary period of social creativity [...] This was one of the many moments when capitalism was remade, its energies channelled, tempered and constrained in new ways [...].
Always the crucial driver has been to prevent the worst abuses of the predators [...] while corralling the creative, productive power of capitalism to improve living standards.
Today's position is no different. [...] Perhaps it's only when everything has been tried, and has failed, that we'll be ready to try something genuinely new.

...from Are we back to the 1930s again? Here's why we shouldn't panic

Geoff Mulgan
The Guardian, Monday 18 March 2013

Tuesday, November 12, 2013

Secularizing the Tech Debate
By Geoff Shullenberger
Dissent magazine

...we must decide the future of network technology and our relation to it through reasoned collective deliberation.

[...]

[The idea] that technological “disruption” is progressive and unavoidable has served to stifle or limit debate about the social, economic, and political effects of such developments.

[...]

Internet evangelists help consolidate the technocratic capture of democratic institutions and legitimize the expansion of corporate and state surveillance.

Monday, August 19, 2013

Differences between stocks and the economy

Why do stocks sometimes rise when the economy is in the ditch? They're not as tightly coupled as you might think.

First, GDP is a trailing measurement whereas stock indices are a speculative leading indicator, with all the uncertainty that implies.

Secondly, the interests of the general US economy and those of largish corporations are imperfectly aligned at best, with a number of factors impacting each unequally and at times in opposite directions.

This comes from an excellent discussion on Quora: How does QE translate to all-time highs of equity indices?

Tuesday, July 2, 2013

Restless Empire: China and the World since 1750

At some point during this century, China will become the world's largest economy, while the US will still be the largest military power in a multipolar world. These transitions are historically dangerous.

The relations of China with the rest of the world will be a critical part of this swing in the balance of power. China, through the lens of its foreign relations, is the topic of “Restless Empire: China and the World since 1750” by O. Arne Westad, a Professor of International History at the London School of Economics specializing in the Cold War and contemporary East Asia.

The past couple centuries have traumatized China - humiliating concessions to the European powers, civil war, terrifying abuse at the hands of the Japanese, and the self-inflicted disaster of the cultural revolution. These events shape Chinese world-views today. The book is about China's search for a workable hybrid between modernity and Confucian tradition, between eastern and western political and social thought, among its diverse interior regions and between China and the outside world.

What I take to be the main messages of the book are these:

  • China has always been an empire and still is.
  • The traumatic events of the past couple centuries are the drivers of modern Chinese relations with the outside world.
  • Ongoing change in China is fast, sweeping and the outcomes are unpredictable but sure to have a huge impact on the world.

The cycle of empires

There is a sense of centrality deeply ingrained in Chinese thought. For centuries, the place of the middle kingdom was at the center of a tributary system encompassing most of east Asia.

A regular cycle seems to have repeated over millenia in which a dynasty holds the center of power for a as little as a few decades or as much as a few hundred years. Over time, regimes weaken through corruption or infighting and fall followed by messy and prolonged periods of chaos from which a new rulling class would eventually emerge.

At the height of the Qing Dynastry, China's economy was growing with trade links to Southeast Asia, Japan and Europe, and a merchant class was rising along with it.

The Treaty of Nerchinsk (1689) established the boundary with Russia and is the oldest treaty in which China dealt with a foreign power on a equal basis. But, the Qing adopted the tributary model when faced in the 1700's with the first emissaries from the expanding trade empires of the Portuguese, Dutch and British. This was a critical mistake.

The Qing were slow to realize the threat posed by the industrialized economies backing the foreigners. Preoccupied with the rules and rituals of court, convinced of their cultural superiority and the centrality of the middle kingdom, the Qing failed to see any need for change.

There followed a series of increasingly disastrous confrontations with European powers. While colonial powers enforced treaty ports and extraterritoriality by gun-boat diplomacy, China was further debilitated by internal uprisings, bloody successions, and loss of territory to Russia and Japan.

The opium wars of 1840 and 1860 ended with the destruction of the summer palace in Beijing by the British. Unable to repel the foreigners, the declining Qing could only appeal to tradition to prop up their sagging legitimacy.

The failure of the Boxer Rebellion (1898-1901) under the slogan “Support for the Qing and extermination of foreigners” left the dynasty in an untenable position. Partition of China into colonial possessions was only narrowly avoided.

Modernization delayed

Japan's emergence as a modern industrialized nation during the Meiji Restoration (1868-1912) served as a model for many Chinese reformers including Sun Yat-sen. This inspiration was not well received in the centers of power, perhaps due to the Japanese view of the Qing with their Manchurian ancestry as barbarian conquerers, a view that may have had sympathy within China itself. Further complicating matters, the Sino-Japanese War of 1894-1895 extended Japanese influence over Korea, formerly a Chinese tributary.

The Republic period began with great hope for modernization. In 1911 the Republic of China was declared with Sun Yat-sen as provisional president. If events had not taken several turns for the worse, China might have begun its modernization at this point, rather than the 1980's. But, the republic never stabilized, degenerating instead into the Chinese civil war between Kuomintang forces led by Chiang Kai-shek and those of the Communist Party.

The political climate of Japan became increasingly militaristic, nationalistic and aggressive. Japanese inspired reformers were betrayed by Japan's brutal pursuit of imperial ambitions.

The civil war continued right on through the Japanese occupation, seeding conditions for an ineffective response to the invasion and discrediting the republican government. As WWII dragged to a close, any semblance of a united front broke down and fighting soon resumed. In 1950, the communists finally defeated the KMT forcing a retreat to Taiwan.

Communism

In China and other colonial enterprises, the banner of Capitalism was used as a cloak to wrap around exploitation. Instead of free and open markets, exclusive rights were granted to colonizers with gunboats. The local elite was allowed to retain a measure of privilege conditional on cooperation, while the lot of the common native was to be cheap expendable labor.

An ideology that presented itself as an alternative to this one-sided arrangement, unsurprisingly, looked pretty good. In contrast to Mao's unhinged obsession with finer points of doctrine, the appeal of communism to the average Chinese has to be simply as a means of opposition to exploitation and occupation by foreigners.

The post-colonial era played out in similar ways in Burma, Korea, Vietnam, Laos and Cambodia - the rise of communism accompanied by civil war and pathological spasms of violence like the cultural revolution and the purges in Cambodia.

The transition from Marxism to whatever China is today - market socialism, state capitalism, socialism with Chinese characteristics, obfuscated by the need to fundamentally change policy with minimal admission of error, forces party theoreticians into awkward and convoluted rationalizations. Even so, Chinese adoption of market methods has been an amazing success. For most Chinese, central planning and collective ownership were never as important as an end to independence and prosperity.

USSR / Russia

Relations between China and Russia have been at least as bipolar as those with America.

Soviet troops fought the Chinese to maintain control of the Manchurian Chinese Eastern Railway in 1929. The Russians had designs on Xinjiang as far back as Czarist times with troops stationed in the region between 1934 and 1942.

In the 1950's, Russia was the center of world communism. Mao, unhappy in a secondary role, incited nonsensical ideological battles with the Soviets and grew to mistrust the intentions of Russian involvement in Vietnam, though still fighting together against the common enemy as they had in Korea.

That the Chinese leadership of that time let such an obvious alliance go so far wrong raises questions about their grasp of the situation and level of paranoia. The countries nearly came to war in 1969 over control of a handful of islands in the Amur and Ussuri rivers.

In recent times, China has pivoted politically back towards improved relations with Moscow, even while trade with the U.S. has boomed. The transition to markets was handled very differently in the two countries. The controlled pace of change in China is in deliberate contrast to shock therapy. After following very different trajectories in the post-cold war era, the two countries have converged on models that are in some ways similar, with a strong central state, and in some ways complimentary, becoming an exporter of commodities on the one hand and of manufactured goods on the other.

The Russian far east is vast, empty, and rich in resources but economically stagnant, while China is crowded, resource hungry, and booming. It's logical then that the region is seeing a rapid influx of Chinese. The Shanghai Cooperation Organization forms the basis for China to become a huge market for Russian energy and military exports.

America

Complicated can be the only word for the relationship between America and China. For China, America is equally a model and a rival. Both countries share a belief in their own exceptionalism. The countries have been alternately partners and enemies over the 20th century.

The US holds a noticeable chunk of the Chinese diaspora. The 2010 census counted 3.8 million Chinese Americans. This is in spite of the Chinese Exclusion Act of 1882 which banned immigration from China, due to a perceived threat of cheap Chinese workers. The act remained in effect until 1943.

As a former colony, America could plausibly claim to sympathize with China's mistreatment at the hands of colonial powers. Rather than see China carved up, President William McKinley supported an independent China. Post-colonial brotherhood aside, maintaining American trade access was an important consideration. In 1900, McKinley sent 5,000 American troops to help quell the boxer rebellion, an expansion of presidential powers that would later be echoed in the Korean and Vietnam wars.

During the republic period, the United States strongly supported the Kuomintang forces, in continuity with its present day support of Taiwan.

U.S. and Chinese troops fought in Korea and China supplied equipment and transportation engineering during the Vietnam war.

As the U.S. presence in Vietnam ramped up, China was still recovering from the disastrous great leap forward and wanted to avoid another direct confrontation with the U.S. but also wanted to be seen as the vanguard of worldwide communist revolution. The extent of Chinese involvement in Vietnam has been a source of debate. But, it's clear that China committed significant resources at a time when their own economy was in tatters, their relationship with the U.S.S.R was falling apart, and even the Vietnamese were coming to mistrust them.

According to China's Involvement in the Vietnam War (Chen Jian 1995):

From early August 1965 to March 1969, a total of 16 divisions (63 regiments) of Chinese anti-aircraft artillery units, with a total strength of over 150,000, engaged in operations in Vietnam. ... The Chinese statistics claimed that these troops had fought a total of 2,154 battles, and were responsible for shooting down 1,707 American planes and damaging another 1,608.

After the Sino-Soviet split, Nixon and Kissenger initiated rapprochement with China in the early 1970's as a cold war tactic against the USSR. With the ascendance of Deng in 1979, China began adopting market economics and export-led growth.

From almost nothing, trade between China and America grew to the level where the U.S. exports 110 billion in goods to China while importing 425 billion (2012 numbers from the U.S. Census Bureau). The arrangement by which America provides a huge market for China's exports and China soaks up American debt was named Chimerica by Niall Ferguson and Moritz Schularick.

Henry Kissenger, wrote in 2011 in the WSJ,, "China and the U.S. could easily fall into an escalating tension," and told a reporter:

"Is it possible to achieve enough of a cooperative pattern to avoid sliding through a series of mutual misconceptions, of stepping on each other's toes, into a situation where an ultimate confrontation becomes inevitable? And looking at the fact that we have not known how to end our little wars, I have no great hope that either side would know how to end such a conflict. ...Am I optimistic that it's going to be done? No."

Structure

Thinking about China as a unit can be deceptive. Its structure is decentralized, with the center weilding powerful but supervisory authority. China is broken up into 23 provinces and 5 autonomous regions, which are further subdivided into prefectures, counties, districts and villages. The largest 4 cities are municipalities. Hong Kong and Macau are special administrative regions. In addition, there are several special economic zones and the truly special case of Taiwan.

The country is divided along several axes: regional, ethnic, religious, rural/urban, coastal/interior. China is rapidly urbanizing, but has a substantial population in the countryside. Corporate power centers have developed since privatization.

In some ways, China is divided from it's own history:

"To quite some extent, young Chinese today are cut off from much of their past. They are cut off linguistically, because they do not know the classical Chinese and, therefore, they are not able to read, in effect, anything that was written prior to the 1910s."

Riding herd over this sea of divisions, the central government has something in common with transnational bodies like the EU or neighboring ASEAN.

Future

With this in mind, China is in many ways still is the empire it has always been, encompassing a vast and varied geography, many distinct races and cultures, and ruled by a comparitively tiny elite in Beijing. Westad argues that its political structure is unlikely to remain as it is.

China may slowly follow a path similar to Korea, Singapore, Japan and Taiwan, with government led economic growth followed by an increasingly participatory political system. Or China's hyperspeed industrial revolution may stall out with aging demography into a middle income trap.

Just as cold-war era Eastern Europeans could see the better material conditions in the west, mainland Chinese are increasingly aware of the prosperity in Taiwan, Korea, Hong Kong, creating intense pressure on the regime to deliver equally a high standards of living.

China does not want to destroy the US-led global economic system under which it has done so well and has no desire to end up like the Soviet Union. This makes cold war between US and China less likely. The Chinese doctrine of non-interference is a defensive posture focused on securing China's gains of the last 50 years and sustaining the flow resources necessary for economic growth.

Speaking on his book, Westad says, "What China wants at the moment is not to change the international system. It simply wants more for China within that system."

"China's focus is on its role as a regional power." China's foreign policy is immature, shaped by China's troubled recent history, alternating between a lingering sense of victimization and a temperamental nationalism. "The Chinese belief, held by every Chinese that I know, that China has been treated very unjustly over the past century, that China has been victimized."

Risk is concentrated in several potential flash points:

  • North Korea, Taiwan, the South China Sea
  • Xinjiang and Tibet
  • Border conflicts with India
  • problematic allies like North Korea and Pakistan

China is not in a "revolutionary situation", as long as the economy continues to work well. But, "Those who think that China will remain the way it is today for a very long period of time are certainly almost entirely wrong."

More

Thursday, February 28, 2013

Code for America

Jennifer Pahlka leads Code for America, which she calls something like a Teach for America or Peace Corp for geeks. The organization pairs techies, coders, designers and data wranglers with municipal governments to build apps that help connect citizens with public services and with each other.

The project starts with the premise that both technology and government are platforms for collective action. In that light, updating government's traditionally lagging approach to digital technology might have a big impact in terms of engagement with grassroots community projects.

The hope is that government can learn a few tricks from Internet and start-up culture - being permissionless and open, crowd-sourcing. Pahlka spoke at the conference Strata yesterday on helping government become more data-driven (Moneyballing Government).

Code for America seems to like trying lots of quick experimental projects to see what sticks. Some of these include:

Rebooting government

Politics may be broken beyond any individuals ability to fix. technology can lower the barrier to entry letting more people lend a hand to help the day-to-day business of government run better. In Pahlka's vision, this involves setting aside politics and contempt for bureaucracy and realizing that we are not just consumers of public services. By using our hands rather than our voices, we end up strengthening civil society.

Our contempt for bureaucracy keeps bureaucracy working against us. Maybe it's better to occupy the SEC than Wall Street.

She concludes her 2012 TED talk Coding a better government with the observation that “We're not going to fix government until we fix citizenship.” and asks, “Are we just a crowd of voices, or are we a crowd of hands?”

Saturday, February 23, 2013

The Politics of Data

However objective data may be, interpretation is subjective, and so is our choice about which data to record in the first place. ... data, no matter how “big,” cannot perfectly represent life in all its complexity

The Problem with Our Data Obsession, by Brian Bergstein writing in the MIT Technology Review

Privacy vs. transparency

There's been a flurry of news about openness and data.

Cartoon by Rayma.

David Brooks' New York Times pieces on The Philosophy of Data and What Data Can’t Do explore whether data can overcome human bias and what biases get introduced in the process, where to draw the line between data-driven decisions and organic judgment, when values, context and causation trump mere correlation. Flawed models helped bring about the 2008 financial crisis, but the underlying causes had more to do with deeply flawed incentives.

On one hand, data from social networks are making social science more scientific. On the other, do we want Facebook to make us more open and transparent to advertisers? I'm dreading 5 or 10 years from now when pictures of my kids will be used to advertise to me. The masters of click-data keep are sure to keep getting better at pushing our buttons.

The collection and exploitation of personal data remains a largely unregulated open frontier. But, on some fronts, policy is moving in a positive direction. The public was able to effect the demise of SOPA, but the special interests expect us to give up. The government is looking out for its own pocketbook when it mandates Open Access.

Open access in science

White House says government-funded research should be more public and has moved to expand public access to the results of federally funded research by directing that published results be made freely available to the public within one year of publication and requiring researchers to better manage digital data.

Open questions

What's needed is, a “rethinking [of] how our legal system affects technology, and how it allows crony capitalism to stifle innovation”.

There are trade-offs to be made: privacy against transparency; open access against proprietary business models. Can we trust what the data is telling us and how that knowledge will be used? Will the benefits will be gated and captured or open and distributed?

Thursday, December 27, 2012

Go off the fiscal cliff

The US federal budget has been chronically in deficit for most of my life, not to mention most of the century.

The national debt is bouncing up against a ceiling of 16.4 trillion, compared to a 2012 GDP of around 15 trillion. Each of the 117 million American households owes about $140,000. Median household net worth was over 100,000 before the real-estate bubble burst. Now it's about $67,000.

Krugman argues that we can grow our way out of debt and that scary talk of a trillion dollar deficit is just a tactic to frighten voters into abandoning welfare and social programs. We can continue to print money, short-changing China and domestic savers.

But, debt can't increase indefinitely without landing us in the same pickle as Greece or Argentina sooner or later. And there's no way to know in advance when later becomes now.

Obama is offering $1.3 trillion in revenue increase for $930 billion in spending cuts. The republicans might haggle this ratio down a bit, before a deal is struck. A big chunk of the cuts ($400 billion) fall on health care programs. Farm subsidies take a hit ($200 billion). And "non-defense discretionary spending" gets slaughtered. This obscurely named category includes things like infrastructure, research, disaster relief, education and the environment. Neither party seems ready to cut more than $100 billion or so from defense.

The fiscal cliff splits the cuts evenly defense and domestic spending. If you prefer butter to guns, that might be a better deal than a "grand bargain".

Far from an apocalyptic event, the fiscal cliff is a good start at what we need to do anyway. It accomplishes two wise but politically impossible things - spending cuts on defense and ending the Bush tax cuts. Fixing the collateral damage is going to be a lot easier that getting either of those items a-la-cart. Don't panic! If anything worthwhile gets cut, we can always bring it back.

So, I say, Fuck it! Let's go flying off the fiscal cliff.

Thursday, December 6, 2012

Three Myths about Copyright Law

Just to prove that Lawrence Lessig is right, a GOP group released a shockingly sensible memo on copyright, then retracted it due to pressure from lobbyists. Now Derek Khanna, the staffer that wrote it has been given the boot.

Khanna’s three myths

  • the purpose of copyright is to compensate the creator of content
  • copyright is free market capitalism at work
  • the current copyright legal regime leads to the greatest innovation and productivity

To read

More on intellectual property

Sunday, November 25, 2012

Hong Kong

I started reading Restless Empire, China and the World Since 1750 by Odd Arne Westad. Here's what he has to say about Hong Kong:

It was in Hong Kong that the colonial experience in China was formed. It was in the great harbor at the mouth of the Pearl river, that the pattern for hybrid Chinese-European societies would be set. The city facilitated British trade all over southern China, while becoming in population a Chinese city, attracting immigrants from all over the country: refugees, dissidents, entrepreneurs, and fortune hunters. In 1860, Hong Kong had a population of more than 120,000, of whom only 3,000 were non-Chinese.
Like all British colonial cities, Hong Kong was basically well-run, but somewhat shoddy at the edges, where corruption and exploitation thrived. It was a city founded on enormous paradoxes and hypocrisies. The foreign missionaries preached virtue to the Chinese where the foreign merchants kept them addicted to opium. The British preached law and order, though they had taken the territory by brute force. The Chinese came to Hong Kong to take advantage of the opportunities offered them in a city that was not theirs and bore the indignities of being second class residents in a strict racial hierarchy in order to escape a world that was crumbling around them elsewhere in China. Over time, they built their own organizations, as the Chinese diaspora did elsewhere, even though the Hong Kongers had never left their own country.
The great trading houses stood at the center of foreign commercial activity in Hong Kong. Many of these companies - Jardine, Matheson, Butterfield & Swire, Hutchinson - came out of British trade in India after the dissolution of the East India Company in 1834, and established a presence in many treaty ports in China. Still, they were nowhere more influential than in Hong Kong, where they not only ran the economy and in effect also the politics. From the beginning, these trading houses where international organizations, led by English (or in the case of Jardine's, Scots) businessmen but staffed by Chinese, Indians, Europeans, and Americans. By the late nineteenth century, they were the main mediators between Chinese and foreigners, not only in Hong Kong, but all over China, not least because of their increasing control of the Chinese banking system.
It was not just Hong Kong's economic opportunities that drew Chinese from all over but also its educational ones.

- Odd Arne Westad's Restless Empire (slightly edited)

The original charter city

In keeping with a history full of contradictions, Hong Kong serves as the model for charter cities. Proposed by economist Paul Romer, charter cities are semi-autonomous cities in rural sections of developing countries that would have some foreign supervision and, most importantly, would be founded upon a new set of rules.

This unconventional idea was considered and rejected by Madagascar and looks to be having trouble getting off the ground in Honduras. It was always going to be a tough sell - taking the good parts of colonialism. Making an end run around the entrenched interests of local elites is exactly the point, and oddly enough, said elites tend to dislike the idea.

Systems of political/economic order

I'm enjoying tying together the various strands that form the background for modern China's hyperspeed industrial revolution: Confucian order thrown up against the freewheeling and chaotic mixture of cultures and languages of trading cities; complex fluid dynamics of power and money, governments and corporations, and individuals at the margins of empires.

Colonialism is the story of one system for marshaling resources overtaking another, by being more efficient, flexible, scalable, brutal or ruthless. This process seems like a general theme in history:

mercantile > nationalist > feudal > tribal

Maybe, I haven't got the categories quite right. Does capitalism belong there to the left of mercantilism? Judging by Barnett's systems view of the world, you could argue that the age of the mercantile system is not really over, yet.

Saturday, November 24, 2012

Persuasion, Initiative, Freedom, Desire

Econ 101 leaves out persuasion. What fraction of business (/politics) is persuasion? ... It's rare for people to initiate their own dreams or be 100% originators of their goals or preferences. ... Which presents a problem for the Edgeworth-box story of lonely individuals trading with each other. ... pleasure and preference themselves are malleable and being moulded by others all the time. ... Even besides "marketing types" ... plenty of people reflexively enforce social norms and expectations.
The story of Don Draper and the Lucky Strikes makes us individuals out not as free-willed inventors of ourselves, util-seekers and comandantes of our own pocketbooks--but as dull voids with no idea what to do with the incomprehensible freedom we enjoy in a society where incomes so far exceed subsistence. ... It puts us as templates onto which meme-smiths paint their work, searching for 1 that will stick and replicate itself.
...the suggestions of what to do with freedom--trips to India, faling madly in love, "On The Road" type life--aren't original ideas, those come from stories which we have no better idea than to live out.
It's somewhere in that spirit, I think, that persuasion in the workplace, in the store, on the TV, can be modelled. And without an effective theory of persuasion I don't see how economic theory can take an honest accounting of choice, preference, or "optimum".

Isomorphismes, see things differently

Sunday, November 18, 2012

Building reliable systems out of unreliable parts

The following rant was inspired by listening Econ Talk Garett Jones on Fisher, Debt, and Deflation while running.

There's a certain type of fundamentalism around the belief that government is necessarily dysfunctional. Reasoning that government is likely to spend and regulate unwisely, adherents advocate spending cuts and limitations on regulatory authority. The failures of defunded and hamstrung agencies then serve as further proof that the public sector can do little right. If further proof is needed, it's easy to find examples of state sponsored screw-ups.

These same individuals are often more credulous about the competence and probity of corporations. This faith seems undiminished by mountains of evidence in the events of recent years that it is misplaced. Businesses leveraged themselves to the hilt, made and traded risky loans with abandon, and felt almost obliged to keep dancing while the music kept playing.

It should be clear to all that an economic crisis of the magnitude of the great recession that began in 2008 couldn't have happened without substantial errors in both public policy and business decision making. Such as:

  • too much leverage
  • complexity and absence of regulation of derivatives
  • lax regulation of the traditional parts of the financial sector
  • perverse short-term incentives, moral hazard and lack of accountability on the part of the financial sector, especially investment banks
  • moral hazard and lack of accountability in government sponsored entities like Fanny Mae.
  • outright corruption (for example in loan origination) and regulatory agency shopping
  • policy encouraging home-ownership for high credit risk buyers.

Economists debate the degree to which stickiness of prices and wages magnify short-term blow-ups. One extra difficulty of a real-estate driven recession is that long-term contracts like mortgages are about as sticky as it gets.

Economic adjustment happens at different rates - from the millisecond response times of high-velocity algorithmic traders to the months it takes to sell a house or mop up after a bankruptcy. These mismatched rates present opportunities for arbitrage, but if they become severe enough, they can break established systems. Examples include collapses in overnight interbank lending during recent crises and the flash-crash of May of 2010.

Corporations are powerful engines of wealth creation. Countries without governments are not nice places. Both are flawed, but we'll have to stick with them, at least until we find better alternatives.

But, organizations built of humans are bound to be flawed, because they're built of flawed parts. History can be viewed as a series of attempts at engineering reliable systems from unreliable parts, with varying levels of success.

The political and economic dimensions of organizations, public or private, are inextricable. The rats are always trying to find a way in.

Sunday, October 28, 2012

Looting

In a great little interview on the Renegade Economist Talkshow, Tim O' Reilly mentions a 1993 paper by George Akerlof and Paul Romer called Looting: The Economic Underworld of Bankruptcy for Profit. The central idea is that there's a difference between creating wealth and extracting wealth from the economy.

The paper was the subject of a write-up in the NYTimes: The Looting of America’s Coffers.

A political economy

A recent piece in the Economist ( A new anthology of essays reconsiders Thomas Piketty’s “Capital” , May 20, 2107) ends with these words: ...